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Azevêdo says rise in trade restrictions “cause for concern”
Director-General Roberto Azevêdo, in introducing his annual report “Developments in the International Trading Environment” to the Trade Policy Review Body on 8 December, said that “the stock of trade restrictions introduced by WTO members since 2008 continues to rise”. He said that “in a climate of economic uncertainty the continued accumulation of trade-restrictive measures poses a clear risk”. This is what he said:
Good afternoon everyone.
As you know, we like to have balance at the WTO – in all things we do.
So while the Special General Council on 27 November provided us with the excellent news that our negotiating work is back on track, inevitably there was going to be some not-so-good news somewhere else.
You have all seen my annual report on developments in the international trading environment, which was circulated on 24 November.
This report brings news of some real challenges in the international trading environment – challenges which require our attention, and the attention of policy-makers around the world.
The report provides information on trade‑restrictive, as well as trade-facilitating measures, taken by WTO members in the field of trade in goods and services.
It covers the period running from mid-November 2013 to mid-October 2014.
It also covers other relevant trade policy developments, including:
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trade policy reviews conducted in 2014,
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regional trade agreements,
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the Government Procurement Agreement,
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the operation of transparency provisions contained in the various WTO agreements,
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trade finance, and
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dispute settlement.
This meeting gives us the opportunity to look back at all these issues that have emerged over the course of the year and to consider how members might respond.
I will set out some of the key findings of the report in a moment, but first I would like to say a few words on the process of preparing this document.
The information on country-specific measures identified in the section dealing with trade in services and in the four annexes is based on inputs submitted by members and other official and public sources.
Members concerned have had an opportunity to verify the accuracy of this information.
I would like to thank the delegations who have participated in this exercise by providing relevant information on time and by ensuring subsequent verification of reported measures.
These inputs not only help expand the coverage of the report, they are also crucial in ensuring the accuracy of the information contained in the report.
At the same time, it is unfortunate that, as in previous years, many members continue to fail to participate actively in this process.
Just 37% of members responded to the request to submit information on their new trade measures. This is slightly up from 35% in 2013 – but of course it is still far too low.
It is also a matter of concern that even when members participate in this information-gathering process, they often do not provide information on certain types of measures – especially on so-called behind-the-border measures, including general economic support.
There are of course other organizations that monitor developments in the application of trade measures – and the findings in their reports sometimes differ from ours.
We have carefully studied the methodologies used in those reports but remain confident that our work here provides a sound and realistic picture of current trade policy developments around the world.
Finally, let me stress that this report is a constantly evolving product.
As you will have noticed, we have made certain changes in order to present the main findings of the report in a clearer, more accessible way. We have also provided data on how the number of trade-restrictive and trade‑facilitating measures has evolved since the onset of the global financial crisis in 2008.
Let me now turn to the substance of the report.
Rather than simply listing the findings, I would like to draw out what I consider to be the significant policy issues affecting the trading system that have emerged in the current reporting period.
In a climate of global economic uncertainty the continued accumulation of trade-restrictive measures pose a clear risk.
Current prospects for world output and trade are far from favourable.
During the course of the year, lower-than-expected GDP growth has led our economists to downgrade their forecasts for world trade growth to 3.1% in 2014 and 4% in 2015.
These rates are higher than in 2012 and 2013. But they are significantly lower than the average growth rate in the 20 years prior to the global financial crisis of 2008.
Some argue that this slower growth of world trade is now a permanent feature of the global economy.
Against this backdrop, recent trends in trade policy actions of members are a cause for concern.
The report points out that the stock of trade restrictions introduced by WTO members since 2008 continues to rise.
Of the 2,146 trade-restrictive measures introduced since 2008, only 508 have been removed – that’s just 24%.
The total number of trade-restrictive measures still in place now stands at 1,638.
The report also notes that the number of new trade‑restrictive measures introduced during the period under review is quite high, at 168.
The average number of new trade-restrictive measures per month is higher in this period than in any other period since October 2008.
While we have also witnessed a substantial increase in the number of trade‑liberalizing measures, this should not detract from the overall picture.
In addition, there is some evidence that, more recently, the application of trade-restrictive measures is leading to heightened friction between members on trade issues.
Aside from the increase in the number of dispute settlement panels, members have increasingly voiced concerns regarding specific measures taken by other members in WTO subsidiary bodies, such as the Council for Trade in Goods.
In this context, members should strive to show greater restraint in the imposition of new trade‑restrictive measures, eliminate existing trade restrictions, and contribute to enhancing transparency on behind-the-border measures.
A second important policy issue identified in this report is the relationship between regional trade agreements (RTAs) and the multilateral trading system. This is of course not a new issue but the report makes some interesting observations based on recent research.
As of mid-October 2014, the WTO had been notified of 253 regional trade agreements. However, there are also 63 regional trade agreements in force that have not yet been notified to the WTO.
And of course negotiations on new RTAs are under way. In some cases these negotiations are between parties that account for very substantial shares of world trade and GDP.
Given the growth in the number and the changing scope and coverage of RTAs, there is clearly a need for a better understanding of the relationship of these agreements with the multilateral trading system.
Building on recent research undertaken by the WTO Secretariat, the report provides an analysis of the extent to which provisions in RTAs actually go beyond the multilateral rules contained in the WTO Agreement. You may recall that this was also the subject of a seminar held here at the WTO in September on cross-cutting issues in RTAs.
As I have said before, bilateral and regional trade liberalization initiatives are welcome as long as they do not impose additional barriers to trade, and constitute building blocks towards trade liberalization.
However, we cannot expect them to substitute the multilateral trading system.
There are many subjects that by their very nature require a multilateral approach to be dealt with efficiently – such as trade facilitation, agricultural and fisheries subsidies, disciplines on trade remedies, regulation of financial services and telecommunications, and so on. It is a long list.
Also, these initiatives mostly exclude the smallest and most vulnerable countries and do not fully address the gains from trade that can be obtained through global value chains. Therefore, while we welcome RTAs, we cannot ignore their obvious limitations or the need to avoid harmful effects to third parties.
Another issue to be mindful of is the potential complexity that may result from the existence of different sets of rules and regulations developed in these RTAs, which may be burdensome for traders and business.
We must continue to deepen our understanding in this area to ensure that RTAs and the multilateral system can move forward together, complementing each other, and in the most effective way possible.
Therefore I think we should welcome the initial steps that we have taken in this report and commit to taking this work further in 2015.
Moving on, the third policy issue is that, although improvements were made in some areas of our work in the WTO, compliance with various transparency mechanisms remains unsatisfactory. Again, this is not a new issue.
Section 4 of the report contains a detailed overview of how members have complied with the various notification requirements contained in the WTO Agreement.
Let me just cite a few examples to illustrate the seriousness of the problem that we face in this area of our work.
With respect to the Agreement on Agriculture, the report notes that compliance with notification obligations in the areas of domestic support and export subsidies generally remains below 50%.
In the case of the Subsidies and Countervailing Measures Agreement, the report notes that the percentage of members that do not submit notifications on subsidies has risen from 27% in 1995 to 44% in 2013.
Regarding state-trading enterprises, the percentage of members that do not make any notification has increased from 37% in 1995 to 66% in 2012.
In light of this, I think there is an urgent need to improve compliance with the transparency provisions in the WTO Agreement.
These provisions are essential to ensure that members have the necessary information to understand each other’s trade policies, to ensure that WTO agreements are properly implemented, and to avoid unnecessary trade disputes.
So these are some key points which I think we should take away from this report.
And, in closing, I would just like to leave you with three thoughts as we look towards our work in 2015.
First, I think we would all agree that one of the key reasons that we value the multilateral trading system is because it is a proven bulwark against protectionism. We saw this in the response to the financial crisis, where the mistakes of the past were not repeated.
But preserving the system takes effort and commitment.
And therefore I think we must ensure that the policy issues raised in this report receive the full and urgent attention that they deserve.
Second, we must deliver on the commitments we made at the Special General Council on 27 November to implement all of the Bali decisions and to develop a work programme on the remaining Doha Development Agenda issues.
If we see this work through, we could provide a much-needed boost to economic growth and productivity – at the same time as immeasurably strengthening the multilateral system.
Third, we must also recognize that our experience in 2014 has made it clear that we need to find ways to operate more efficiently.
We have shown that we can deliver. Now we need to figure out how to deliver more and how to deliver faster.
So, thank you Madam Chairperson; this concludes my statement.
But, before I leave, I would like to thank delegations once again for their contributions to this report, and of course the Secretariat for their work in preparing it.
I would like also to thank delegations in advance for their contributions and ideas this afternoon. We will take careful note of your comments, and will take them into account as we prepare for the monitoring work next year.
Finally, I want to inform delegations that I will be sending out the usual request for information for the next monitoring reports in the first half of March.
I would like to encourage you all to participate in the monitoring exercise and cooperate with the Secretariat as much as possible.
I think we should aim to deliver a higher level of transparency and accuracy of information in 2015.
Thank you.
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AGOA: The US-Africa trade dilemma
Has the African Growth and Opportunity Act run its course?
It may seem counter-intuitive to imagine that Africa could make contractual demands on the United States. Yet, there is evidence that in recent times Africa has become more assertive with a newfound confidence. In fact, it appears the continent is at a point in history where it no longer needs the begging bowl whenever its leaders visit Western capitals.
This sense of confidence was on full display when Africa’s leaders converged on Washington DC for the US-Africa Leaders’ Summit in August 2014. Kenya’s President Uhuru Kenyatta, representing the views of the 50 African leaders, clearly projected the new face of Africa’s diplomatic acumen by asserting that “it is good to see the US is waking up to the realities of the potentials of Africa just as China did a long time ago.”
Unlike in the past when such a summit would have provided a forum for lectures to Africa on democracy and human rights, this time around it was about mutual partnerships, deals, trade and investments. “We want to build genuine partnerships that create jobs and opportunities for all our peoples and that unleash the next era of African growth,” President Barack Obama said.
For the US, creating “genuine partnerships” with Africa is coming rather late. In fact, according to analysts, the US is now in a sprint to catch up to others exploiting Africa’s economic potential. With China deeply entrenched in the continent, Europe trying to safeguard its interests and India and Japan making major inroads, the US stands to be an outsider in a continent poised to become one of the leaders in global economic growth in the coming years. Already Africa is home to most of the world’s fastest growing economies.
“Africa offers immense opportunities in terms of abundant natural resources, new technologies, investments, access to potential markets, and new types of consumers. Although the US has been relatively slow to react to these dynamics, hosting the summit was a sign that it can no longer stay on the sidelines,” said Emmanuel Nnadozie, the Executive Secretary of the African Capacity Building Foundation based in Harare, Zimbabwe.
One way the US is seeking to deepen its interests in Africa is by encouraging its multi-billion dollar companies to invest in the continent. Indeed, during the summit, new deals worth $14 billion in areas like clean energy, aviation, banking and construction were signed between various African nations and US multinationals. The US government also committed to providing $7 billion in new financing to promote trade and investment with the continent.
The American deals, however, offer little cheer to a continent that seeks immediate impact in job creation, poverty eradication, markets for its produce and direct contribution to the economy. This is because it will take years for the benefits of the deals to be felt. On this basis, some African leaders contend that the Africa Growth and Opportunity Act (AGOA – a US law enacted in 2000 under which Africa can export certain goods to the US duty-free) is the best option in deepening trade between the continent and the US.
America Promise
The problem, however, is that Africa abhors the uncertainties of the treaty, and its limiting structures. “We want to deepen our engagement with AGOA but this can only be achieved if we eliminate the uncertainties and if it is broadened,” observed Kenya’s Industrialisation Cabinet Secretary Adan Mohammed.
The need to eliminate uncertainties and enhance the treaty was one of the key demands African leaders tabled at the summit. Though AGOA has been described as the cornerstone of US trade policy with Africa – increasing non-oil exports from Africa to $53.8 billion from US $8.1 billion over 10 years – its impact and benefits have been minimal. Apart from oil, textiles, manufacturing and artifacts, very few other sectors have benefited from the treaty that allows duty-free entry into the US market for some 6,000 products.
Worse still, just a handful of countries dominate trade under AGOA. In 2011, for instance, all exports from Africa to the US totalled $79 billion. Notably, almost 80% came from just three countries – Nigeria (47%), Angola (19%) and South Africa (13%). US exports were similarly concentrated, with those same three countries receiving 68% of the $20.3 billion that came into the continent in 2011. “The utilization of AGOA privileges has been sub-optimal, with only seven out of 39 African countries being able to meaningfully take advantage of the opportunity availed by the treaty,” noted Erastus Mwencha, deputy chairperson of the African Union Commission.
US Trade Representative Michael Froman admitted that the discrepancies have not sufficiently projected US commitment to a trade partnership with Africa. “Despite the concrete benefits that AGOA has brought to both of our continents, it is clear that more can and must be done,” Mr. Froman observed. For instance, the insignificant non-oil AGOA trade that increased marginally from $1.4 billion in 2001 to $5 billion in 2013 is a justification that the treaty requires structural adjustments. “While we are seeing countries starting to branch out and use AGOA for more products, there is still much room to grow in non-oil, manufactured and value-added products,” he added.
For this to happen, President Obama and the US Congress must be willing to bite the bullet. First, the US government has few options but to extend the AGOA treaty when it expires in September 2015. More importantly, African leaders are calling for a long-term extension to eliminate the uncertainties that shroud the treaty. They argue that it is only by extending the treaty by a minimum of 15 years that investors will feel comfortable investing in the continent because they will have ample time to recoup their investments.
The AGOA Dilemma
According to Heman Boodia, vice president of New Wide Garments Ethiopia, the kneejerk extension of AGOA for only five years has made it nearly impossible for investors to plan for the long term. “It takes at least two years for investors in the textile industry to get returns. That is why we need the AGOA extended for at least 15 years,” he said, adding that failure by the US Congress to extend the treaty could be catastrophic to the continent in terms of job losses. New Wide, which has operations in Lesotho and Kenya, employs about 13,000 people.
In 2012, apparel accounted for 17% of non-oil AGOA exports. It is also the most diversified sector in terms of the number of beneficiary countries. In Kenya alone, the garment and apparel industry within the export processing zones employs about 40,000 people.
While extending the treaty will safeguard these jobs and create many more, there is a feeling in the continent that AGOA requires significant changes to open up the US market to more non-oil and non-apparel exports.
One sector that is in desperate need of new markets is the food and agriculture sector. But accessing the US agriculture market under AGOA is extremely difficult. Apart from the issue of standards, the US is determined to protect its farmers through subsidies. Currently, the value of agricultural exports to the US stands at $520.8 million. According to Mr. Mwencha, the US can help Africa’s agricultural sector by allowing duty-free access of produce currently excluded from AGOA, such as sugar, tobacco and cotton.
This article appears in the December 2014 edition of Africa Renewal, published by the United Nations.
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West Africa: New railway network aims to boost inter-regional trade
Rail to link Benin, Burkina Faso, Côte d’Ivoire, Ghana, Niger, Nigeria and Togo
On the dual carriageway linking the main airport to downtown Niamey, the capital of Niger, workers are busy digging trenches in the middle of the island separating the lanes, and laying tracks where rows of lampposts once stood. They are racing against the clock to build a thousand-kilometre stretch of a regional network that will connect Niamey to the West African seaport of Cotonou, Benin. The project is expected to be completed by the end of 2015.
“We’ve waited so long for the train to arrive,” quipped Nigerien president Mohamadou Issoufou as he ushered his counterparts from Benin and Togo into a brand-new carriage on a muggy day in April 2014. The symbolic ride lasted for only a few minutes. “History is in the making,” said President Issoufou.
Building a railroad network along the West African coast from Abidjan in Côte d’Ivoire to Lomé in Togo has been talked about for years. The network is expected to boost trade among Benin, Burkina Faso, Côte d’Ivoire, Niger and Togo. After several delays, the project is now firmly back on track following the decision by the exclusively francophone Conseil de l’Entente (Council of Accord), the oldest West African subregional cooperation forum, to start construction. Niger and Benin started working on their stretch of the project in April, to be followed by Burkina Faso and Togo shortly thereafter.
Surface transport slow
Landlocked Niger depends on its neighbours’ seaports and road infrastructure to move its exports and imports. Much of its international trade is conducted through Cotonou and Lomé seaports.
Until recently, road transit across the region has been unreliable. The situation, however, is improving gradually as international trade corridors are being rehabilitated and many police checkpoints that were slowing down traffic and being used to solicit bribes have been removed. Yet even in those improved conditions, a private car could take up to 18 hours to travel the 1,050-km trip from Niamey to Cotonou. For freight transport, travel times are even longer; drivers could spend up to three or four days on the road.
A 2011 study of infrastructure within the Economic Community of West African States (ECOWAS) region found that road freight across the West African region moves at an average of 1.6 km per hour, almost double the average velocity in southern Africa. The study, which was done by the World Bank’s Africa Infrastructure Country Diagnostic (AICD), a project that examines physical infrastructure in Africa, also found surface transport to be more expensive than in the rest of Africa and other developing countries. It costs US$0.08 per kilometre to move one tonne of freight, twice the average cost in the rest of the developing world.
The projected regional railroad network is expected to speed up transit times for freight and reduce the prices of consumer goods for landlocked Sahelian countries such as Burkina Faso and Niger because most imported goods will be shipped by train. Those countries are also expecting the regional railroad network to boost their exports of natural resources.
Network to speed up transit time
Niger’s mineral resources contribute a very small amount to its gross domestic product (GDP), although they represent more than three-quarters of its total exports. According to Oxfam International, a UK-based charity, Niger’s uranium exports, which constituted 71% of the country’s total exports in 2010, contributed a paltry 5.8% to its GDP.
Over the next decade, however, the government hopes to quadruple the revenue from uranium. Authorities recognize that reducing production costs is key to maximising profits and tax advantages. This will entail shifting to moving uranium ore to the Cotonou seaport by rail wagons, rather than trucking it over the 2,000 km from the Northern Agadez region.
A 2013 study by Conseil de l’Entente projects mineral exports for the entire region will rise from 109,200 tonnes per year over the 2012-2020 period to 3.4 million tonnes per year over the 2020-2030 period. Since shipping goods to and receiving them from Niger and Nigeria accounts for 90% of the Cotonou seaport’s activities, Benin stands to gain from improved transportation infrastructure.
Not everybody in Niamey is convinced that building the transport network should be a priority. Representatives from civil society organizations went on the airwaves in May 2014 to voice their opposition to the project, arguing that Niger should spend its resources on guaranteeing food security and lifting its people out of poverty. The country is ranked last on the latest UN Development Programme Human Development Index. The government, however, has the support of the coalition of opposition parties.
“We are convinced that a rail network is very important for a landlocked country like ours. But rushing it over the first 140 km…is very surprising,” said Seini Oumarou, the leader of the coalition.
Niger’s general elections are scheduled to be held in early 2016. Mr. Oumarou suspects authorities of being influenced by “political expediency,” as President Issoufou has vowed to ride the train to the events commemorating Nigerien independence on 18 December.
Exploring innovative financing
The new tracks being laid from Niamey will connect to an existing sub-network in neighbouring Benin. That segment is part of a bigger West African rail track project that will loop back to Abidjan with the addition of a coastal rail line running through Cotonou (Benin), Badagry (Nigeria), Lomé (Togo) and Accra (Ghana).
Experts estimate that the Niger-Benin section will cost $1.6 billion, a sum that has long deterred investors. Governments have now started exploring innovative financing alternatives. Because of the economic potential of these projects and Africa’s expected growth over the coming years, regional authorities are eager to let private investors take control of the “strategic infrastructure” for as long as necessary to recoup their initial investments and make profits. They are inviting the private sector to invest under build, operate and transfer (BOT) arrangements. Under such an arrangement, private companies build and initially operate the infrastructure, then hand over operations and ownership to the government.
Bolloré Africa Logistics (BAL), the French company that has been awarded the Niger-Benin contract, currently operates public service concessions in Côte d’Ivoire and Burkina Faso through a subsidiary, the Société Internationale de Transport Africain par Rail.
Once the coastal rail line is completed, the whole network will be 3,000 km with 1,200 km of new track, in addition to the existing 1,800, which are to be rehabilitated. Other countries in the region are looking at similar BOT arrangements. Leaders from Benin, Côte d’Ivoire, Ghana, Nigeria, and Togo recently called on both BAL and Pan-African Minerals, a UK-based mining company, to finance the coastal rail line linking Côte d’Ivoire to Nigeria. The projected cost for this rail project is about $58.9 billion.
Since 2009, ECOWAS has been pushing for interconnection of the rail networks that exist in 11 of its 15 member states. But unlike in Southern Africa, where intra-regional rail networks are well developed and integrated, in West Africa the rail systems are mostly fragmented and operate on three different rail gauges (widths). Most francophone countries’ rails are 1,000 mm wide, but Ghanaian and Nigerian rails are 1,067 mm wide, while Guinea and Liberia use the standard 1,435 mm width. The coastal rail line project carries hope for the entire region, in part because its completion would demonstrate that once-insurmountable technical challenges can be overcome.
This article appears in the December 2014 edition of Africa Renewal, published by the United Nations.
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Morocco and Mexico are the big winners from international climate funds, while many poor countries are left behind – new ranking
The most detailed study yet of international funding to adapt to climate change and cut emissions reveals that half of the US$7.6 billion approved to date is targeted at just ten countries.
In the new report Climate finance: is it making a difference? the Overseas Development Institute (ODI) analyses a decade of contributions and spending to nine major international and two national funds set-up to tackle climate change.
It finds that the top recipients of finance were Morocco, Mexico, and Brazil, receiving half a billion dollars in loans each. Mexico and Brazil are among the top 10 emitters of greenhouse gases, and with Morocco, all have huge renewable energy potential.
Whilst rich oil states in the Middle East have received very little from international climate funds, the report finds that they also have contributed almost nothing to the pot. This is despite being major emitters of greenhouse gases, and the clear link between burning fossil fuels and climate change which is provoking extreme weather conditions and impacting poor countries.
The report includes the first comprehensive breakdown of how climate finance has been spent in 135 countries. It argues that getting climate financing right is crucial to securing an ambitious global agreement on climate change in Paris in 2015.
ODI Research Fellow and Report Author, Smita Nakhooda, said: “Effective use of climate finance will help win the support of poor countries which have contributed the least to climate change but bear the brunt of its impacts.”
Findings show that these funds are helping make a difference, with money to help poorer countries adapt to the impact of climate change increasing from $3.8 million in 2003 to a total of $2 billion in 2014. Poor countries such as Niger, Bangladesh and Nepal have received nearly $400 million over the last decade to help them cope with this growing threat. While not enough, the trends in spending are positive.
Among other results, funds have helped:
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Mexico massively increase its installed renewable energy capacity in an energy system previously only powered by fossil fuels.
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Morocco to develop its solar energy resources.
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Brazil complete three separate projects that resulted in nearly 3,000 hectares of reforested land, benefitting some 13,000 people.
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Financing 5 million super energy efficient fans in India.
But with such modest sums of money available, many countries receive very little money. Conflict-affected and fragile states such as Ivory Coast and South Sudan, where it is generally difficult to spend finance, received less than $350,000 and $700,000 respectively. Several middle income countries that are vulnerable to the impacts of climate change and have significant clean energy potential, such as Namibia, El Salvador and Guatemala, also received less than $5 million each.
While these funds have broken new ground, the report finds that there is substantial scope to improve results and learn from experience. Funds need to become less risk averse, and open to support innovative technologies and approaches. Intense scrutiny from donors and other stakeholders has led many funds to set up complex procedures to ensure programme quality, but this often slows the approval and disbursement of funds.
Nakhooda added: “These start-up climate funds were pioneering in their approach, and a huge amount has been learnt from their experience. There are now too many small climate funding ‘pots’ with substantial overlap and finance is spread too thinly between them, creating an urgent need to learn from experience and improve the system. The lives of millions of people in poor countries affected by climate change depend on getting this right.”
In this context, the new Green Climate Fund (GCF) which will begin to approve programmes in 2015 has a major opportunity to build and improve on the experience of existing funds, having raised nearly $10 billion in only seven months, more than the previous funds have spent in 10 years.
ODI Executive Director Kevin Watkins said: “A great deal is at stake as delegates gather at the climate summit in Lima this month. They need to pave the way for a comprehensive international agreement to prevent dangerous climate change to be reached in Paris by end of next year.”
“The report shows that climate funds have broken new ground by helping developing countries tackle climate. The new Green Climate Fund, armed with nearly $10 billion, has a great opportunity to reduce emissions and support resilience to climate change. But more funds need to be raised to tackle this growing threat and ensure that poor countries support a new climate deal.”
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Multi-year Expert Meeting on Enhancing the Enabling Economic Environment at All Levels in Support of Inclusive and Sustainable Development
The second session of the Multi-year Expert Meeting on Enhancing the Enabling Environment at All Levels in Support of Inclusive and Sustainable Development will be held on 8-9 December 2014 in Room XXVI of the Palais des Nations, Geneva.
Background
An open, transparent, inclusive, non-discriminatory and rules-based multilateral trading system remains an integral part of an enabling economic environment. The effective integration of developing countries into the multilateral trading system remains a priority, and ways and means should be found on how best to achieve this objective.
The objective of the multi-year expert meeting session is to exchange views, experiences and lessons learned regarding policies and measures at all levels to enhance the contribution of an enabling multilateral trading system in fostering inclusive and sustainable development.
The international community is set to define the post-2015 development framework and sustainable development goals wherein trade is expected to play a major catalytic role.
Experience suggests that the transmission of efficiency gains from trade integration to broad-based development is not automatic and remains to be established with conscious policy efforts. This will require coherent and integrated policy intervention supportive of structural transformation at macroeconomic and individual sectoral levels to build broad-based productive capacities with possibility for diversification, technological upgrading and job creation.
Such changing policy needs and priorities should be supported by an enabling economic environment, of which an open, transparent, inclusive, non-discriminatory and rules-based multilateral trading and financial system remains an integral part.
Despite recurrent setbacks, multilateralism remains a global public good to be supported and upheld. The centrality and strength of the multilateral trading system are increasingly under stress as the global trade governance becomes fragmented with the increased prevalence of regional and plurilateral processes.
While the ninth Ministerial Conference of the World Trade Organization (3-6 December 2013, Bali, Indonesia) adopted a package of decisions, including the Agreement on Trade Facilitation, difficulties in implementing the Bali package has again cast uncertainty over the prospects for the post-Bali work to conclude the Doha Round. Efforts are needed to ensure that multilateral and other processes can create an enabling environment for sustainable development.
Issues to be addressed:
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Promoting greater understanding as to how the multilateral trading system can contribute to inclusive and sustainable development;
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Enhancing understanding on how the multilateral trading system has contributed to the Millennium Development Goals and how this contribution can be considered and enhanced in the future implementation of internationally agreed development goals;
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Exchanging experiences and lessons to promote a coherent and integrated approach to trade and inclusive and sustainable development at the national, regional and international levels;
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Promoting greater understanding on the impact of non-tariff measures/barriers on the trade and development prospects of developing countries and identifying possible ways and means of addressing them.
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Economic policy key to global response to climate change: World Bank Group
World Bank Group President says 2015 Paris climate agreement can help transform economy to achieve zero net emissions before end of the century
Against a backdrop of climate deal negotiations in Peru, Jim Yong Kim, the president of the World Bank Group, on 8 December 2014 called for a comprehensive agreement next year in Paris that would require all countries to put a price on carbon, eliminate fossil fuel subsidies, create conditions favoring renewable energy, and invest in projects that can withstand the force of extreme storms.
Kim, in a speech at the Council on Foreign Relations in Washington, said a Paris agreement next year must send immediate signals to investors and financial markets that could help transform economies toward achieving zero net emissions of harmful pollutants before the end of the century.
“In a year’s time, the international community will have the opportunity to send a clear signal that we, as a global community, are determined to manage our economies to achieve zero net emissions before the year 2100,” Kim said.
“Every country finds itself at a different point in the development journey. Therefore, the pace and rhythm of their emissions’ reductions and investments in adaptation will vary. Nonetheless, we have the opportunity in Paris to make clear our collective ambition. That ambition can be translated into long-term demand for clean growth and an increased commitment to adaptation.
“The higher the ambition, the greater the demand will be for programs and projects that will transform economies. Higher ambition will also send a strong message to investors – public and private, domestic and foreign – about the demand and profitability of long-term investments in clean energy and transport systems, sustainable agriculture and forestry, and new resource efficient products.
“Paris must be where we make the rallying cry for effective management of local, national and global economies to fight climate change,” said Kim.
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East Africa looks to more trade with India
East African businesses are set to trade more with India by learning how to take advantage of the country’s duty-free market access scheme, facilitated by the Supporting India’s Trade Preferences for Africa (SITA) project of the International Trade Centre (ITC).
The ITC, a joint agency of the World Trade Organisation and the UN, aims for businesses in developing countries to become more competitive in global markets, speeding up economic development and contributing to the achievement of the UN’s Millennium Development Goals.
The participants of the third SITA held in Ethiopia’s capital city of Addis Ababa Dec 4-5 analysed trade trends under the scheme for each of the SITA partner-country beneficiaries.
It also analysed key issues surrounding complying with the scheme like rules of origin, export requirements in the Indian market, issues impacting on export from SITA partner-countries to India, and the value chain from factory gate to the destination market in India, among others.
“Building productive capacities, market linkages and enhancing investment attractiveness in the selected sectors will be a key way to ensure that SITA delivers impact and provides a sustainable template for similar South-South trade and investment projects,” SITA coordinator Govind Venuprasad told IANS.
“It will also allow companies working in these sectors to become export ready to supply other markets”.
Following an amendment made two years ago in India’s Duty-Free Trade Preference (DFTP) scheme, least developed countries (LDCs) will receive preferential zero-duty access on 98 percent of the Indian tariff lines. It means goods exported from LDCs should have a competitive edge when entering the Indian market.
The stakeholders, representing business, government and civil society, worked together to finalise SITA’s intervention plan, focusing on specific activities in the selected sectors in each of the five East African countries.
The sectors, selected through a series of consultative meetings, reflect demands in international markets as well as the capacity of African suppliers, and are selected in line with national and regional trade development goals.
“Further investments from India would certainly help Tanzania make better use of the scheme,” Adam Zuku, director of industry development in the Tanzanian Chamber of Commerce, Industry and Agriculture, said.
“It would help address the country’s limited capacity to meet export demands, and Indian investors would be better placed to source the right products and access the right buyers.”
The SITA project is a new opportunity through which the Ugandan National Chamber of Commerce and Industry (UNCCI) shall market it because this is an opportunity to actually export to India though DFTP, according to Martin Okumu, head of communication department at the UNCCI.
“We have been exporting to India although our export volume is small but we believe, under SITA, we shall create more awareness, partner, and network Ugandan business community with Indian businesses and in that way we will cultivate more relations and even may be decide to do joint ventures, investments and so on,” he said.
This project will also be a generator of other support systems such as South-South cooperation and it could be the gateway to other trading opportunities in the world through which India already have, he said.
SITA is a project by Britain and Northern Ireland’s Department for International Development (DFID) and mandated by the ITC to design and implement it. On March 9, 2014, a memorandum of understanding (MoU) was signed between DFID and ITC marking the start of the project.
This project responds to the challenges of the selected East African countries – Ethiopia, Kenya, Rwanda, Uganda and Tanzania – face in increasing and diversifying exports. It also addresses trade priorities of the beneficiary countries so they can achieve sustainable development.
The goal of SITA (2014-2020) is to enable East African enterprises to enhance their competitiveness to produce high-quality goods that match overseas market requirements. Indian businesses will partner by providing technology, skills knowhow and investment to build capacities in SITA African countries for value-added production in sectors such as cotton, coffee, pulses and beans, oilseeds, and information and communications technology.
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7th African Private Sector Forum: “Actions speak louder than words”
The 7th African private sector forum, organized by the Department of Economic Affairs of the AUC, ended on 5 December 2014 with the adoption of concrete recommendations on how to effectively support the African private sector in becoming a vibrant and responsible stakeholder in the socio-economic growth of the Continent.
Interactive plenary and parallel sessions were held on themes ranging from: Understanding the role of the private sector; Improving and diversifying access to financing, microfinancing and the role of financial institutions: Capital market, private equity and blending; Ensuring access to value chains; Identifying Investment challenges and opening up new opportunities; Business development and opportunities for youth and women; Sustainable Energy Impact Investment; The need for innovative and relevant technical and vocational training; The effective use of technological tools; Follow-up of the EU-Africa Business Forum (EABF); Presentation of the 2015-2019 African Union Private Sector Development strategy.
In addition to signing MoUs with the ICD and the NEPAD Business Forum to promote financing and investment and promote private sector development, the forum launched the African Investment Promotion Network (AIPN) with aims to avail critical financial and investment information to private sector actors.
Commercial banks and lender instituions were called upon to innovate in the use of specialized products and instruments to extend the maturity of their long-term financing instruments; Put in place financial and risk mitigation products; Broaden financial opportunities; Lay out adequate policies and regulatory frameworks to boost Private Equity investments; Actively mobilize resources from non-traditional sources.
The private sector was encouraged to instill trust by providing necessary information, by being transparent, by laying out proper management structures and by accepting corporate social responsibility such as environment protection.
African countries were urged to design condusive and relevant policies to facilitate access of SMEs to available financing; Ensure a stable macroeconomic environment; Modernise soft and hard infrastructures such as mobile banking; Build well regulated public services; Ensure transparent procurement processes; Support microfinancing; Invest in conditions for an educated, skilled and healthy workforce through targeted technical and vocational training and education institutions; Integrate their economies into regional and global value chains.
The AUC was urged to facilitate and encourage public-private dialogues which build on local, national, regional dialogues; Identify and disseminate best practices in the private sector development; Use its political weight to encourage business environment reforms by addressing, amongst others, limitations for women and youth to participate in the economy as entrepreneurs. The forum further highlighted the need to strengthen continental cooperations and more specifically the EU-Africa Business Forum, to create linkages between continents’ private sectors. The forum further stressed the need for the private sector to be at the forefront of continental agendas such as Agenda2063, PIDA, AIDA, CADDP.
“Over time and during the deliberations in this forum it has become clear that private sector is the engine of development and the significant role played by the private sector in ensuring equity and creating jobs which will lead to transforming Africa can no longer be ignored,” said Mr. S.G. Karicho, Director, Ministry of Foreign Affairs and International Trade of Kenya in his closing remarks.
“To make an end is to make a beginning. The end is where we start from,” said the AUC Commissioner for Economic Affairs, H.E. Anthony M. Maruping in his closing remarks. He stressed the need to put the private sector at the forefront of continental development programmes such as Agenda2063, PIDA, AIDA and CAADP. He further stressed the importance of targeted education to curb unemployment and fill the private sectors’ skill requirements; The need to allow free mobility of skills between African countries; The need to ensure gender equality as well as youth mobilization; And the need to provide clean and rewable energy to foster private sector development and continetal growth. He further thanked all participants for attending this critical forum.
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The implications of the GDP rebasing exercise for Uganda and the EAC
The Government of Uganda released last week, updated figures that raised the country’s GDP by 13.1 percent from 63,905 billion shillings ($24.7bn) to 68,407 billion shilling ($26.9bn) for the fiscal year 2013/14. The re-calculation was a result of changes to the base year, from 2002 to 2009/10. The new figures are to be welcomed because they provide the basis for more accurate economic indicators that are essential for evidence-based policy making. The revision has significantly improved coverage of economic activities in the economy, especially for the informal sector and non-profit institutions.
The revisions also have significant implications for the market size of the East African Community (EAC). Three out of the five EAC member states (Kenya, Tanzania and now Uganda) have recently announced revised GDP estimates. In September the rebasing of the Kenyan economy – the largest in Eastern Africa – resulted in a 25.3 percent increase of its GDP, and Tanzania has just released a preliminary estimate of its rebased GDP for 2007 of 27.8 percent. Together with the Ugandan rebasing, this would imply that the overall size of East African market is now substantially larger than hitherto believed – by a margin of approximately a fifth.
Revised GDP Estimates for EAC Countries, post-Ugandan Rebasing
Old GDP, 2013 (USD, Billions) | Revised GDP, 2013 (USD, Billions) | Change after rebasing % | |
Uganda** | 24.7 | 26.9 | 13.1 |
Kenya | 44.1 | 55.3 | 25.3 |
Tanzania* | 33.3 | 42.6 | 20 |
Burundi | 2.7 | No change | 0 |
Rwanda | 7.5 | No change | 0 |
Total EAC | 112.3 | 134.9 | 20.1 |
The EAC Secretariat is currently citing a regional GDP of US110.3 billion dollars for 2013, but these rebased GDP figures for Kenya, Tanzania and Uganda now places the combined GDP of the five EAC members at approximately USD 134.9 billion USD. In the light of the new figures, the regional market is a much more attractive proposition for both domestic and foreign investors.
With specific regard to implications of the revised Ugandan GDP statistics on the structure of the economy, the national accounts are now classified according to the International Standard Industry Classification (ISIC) Revision 4 compared to ISIC Revision 3 for the 2002 base series. There have been a number of notable shifts under the new ISIC Revision 4 Classification. Using the comparable figures for 2012/3 under the two different base years (2002 vis-a-vis 2009/10), industries contribution declined quite sharply, from 26.6 percent to 20.8 percent – mainly due to the revaluation of the contribution of construction. Conversely, manufacturing – a sub-component of Industry – rose from 8.0 percent to 10.0 percent. Agriculture and services increased marginally.
A second notable feature arising from the Ugandan rebasing exercise is that, although GDP per capita has risen from $697 in 2013/14 (under the 2002 base year) to $788 (under the new 2009/10 base year), this does not imply either better living standards of the population or a decrease in the poverty rate. The new figures will also change the values of macroeconomic aggregates where GDP is used as a denominator. Thus, for instance, it is likely to underscore the inadequate level of government revenues. The ratio of tax revenues to GDP will decrease as a result of the changes to GDP. In 2012 this ratio was at 13% of GDP – already a low figure by international and African standards.
Written by Andrew Mold and Rodgers Mukwaya, Staff of Sub-Regional Data Centre at the ECA Office for Eastern Africa
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Climate adaptation costs soaring, funding to fall short – UN
The cost of adapting to climate change in developing nations is likely to be two to three times higher than previous estimates, even if planet-warming emissions are cut enough to limit global temperature rise to 2 degrees Celsius, a U.N. report said on Friday.
The study said there was a chance that adaptation costs could climb as high as $150 billion a year by 2025 to 2030, and $250-500 billion per year by 2050, compared with earlier estimates of $70-100 billion yearly by 2050.
“As world leaders meet in Lima to take the critical next step in realising a global agreement on climate change, this report underlines the importance of including comprehensive adaptation plans in the agreement,” Achim Steiner, executive director of the United Nations Environment Programme (UNEP), said in a statement.
At the climate negotiations in Peru that run through next week, many developed countries want to focus on mitigation – action to reduce emissions.
They fear that including a global goal on adaptation in the new deal due to be agreed in Paris in a year’s time will lead to demands for firm targets for more adaptation funding.
But developing nations insist adaptation should be put on an equal footing.
“Climate change negotiations have been focused so far on mitigation, but it is very important to take into consideration the adaptation factors because everybody – regardless of the level of development – is being hit by climate change,” said Ibrahim Thiaw, UNEP’s deputy executive director.
If no new efforts are made to cut greenhouse gas emissions, and temperatures head towards 4 degrees Celsius, adaptation costs could be double the worst-case figures by mid-century, the report warned.
Ambitious and immediate action to reduce emissions “is the best insurance against an insurmountable future adaptation gap”, Steiner wrote in a foreword.
ACT NOW TO NARROW GAP
The 49 least-developed countries and small island developing states are likely to have far greater adaptation needs than other parts of the world, the report said.
Without early efforts to adjust to more extreme weather and rising seas in these countries, the gap between what is happening and what needs to happen to protect people, assets and ecosystems will widen, it warned.
“Poor people unfortunately are getting shafted as we speak... and they will have to continue to fend for themselves,” said Saleemul Huq, director of the Dhaka-based International Centre for Climate Change and Development. “The world is not coming to their rescue.”
Funding for adaptation from public sources is rising, reaching $23-26 billion in 2012-2013 but there will be a significant gap after 2020 unless new and additional finance is made available, the report said.
It also identified shortfalls in the technology and knowledge needed for countries to adapt to climate impacts.
Most technologies required in the near term, such as water conservation and more resilient crop varieties, already exist but there are major barriers to people adopting them, the report said.
Knowledge on climate change and adaptation also needs to be used more effectively, and packaged in a way that makes it more accessible to decision makers, UNEP said.
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Kenya taps Sh70bn from global markets to finance key projects
Kenya has tapped the international market again borrowing about Sh70 billion as financing of state’s big projects continue to weigh heavily on government coffers.
Giving details Friday, National Treasury Cabinet Secretary Henry Rotich said the additional amount will be channelled in energy, transport and agriculture projects.
“I wish to inform Kenyans that we have just issued a $750 million (Sh67 billion) international sovereign bond on the back of the bond we issued on June 24 through a process called a Tap, which means re-opening the bond. This transaction is therefore a follow up of the inaugural $2 billion,” Mr Rotich said.
The money is already at the Central Bank having been received on Wednesday.
The issue was oversubscribed by 400 per cent giving the country a discount on the Sh175 billion received in June.
“Due to the favourable yields, Kenya received a premium of $44 million (Sh4 billion) on the issue.
GEOGRAPHIC INVESTOR
On the same note, there was widespread geographic investor coverage led by investors from Europe, mainly from UK and America,” Mr Rotich said.
The issue comprised of a bond for $250 million with a five-year maturity at an interest rate of five per cent and $500 million with a 10-year maturity at an interest rate of 5.9 per cent.
The inaugural bond issued in June was priced at 5.9 per cent for the five-year bond and 6.9 per cent for the 10-year bond.
Mr Rotich said the re-opening of the bond was cheaper and faster way of raising funds as it was riding on the marketing of the inaugural bond with the lead banks staying in contact with investors who were expected to invest in the issue.
OVER-SUBSCRIPTION
As a result, the bond attracted $3 billion against the $750 million amount targeted, which is 400 per cent over-subscription.
“The over-subscription is an indication that foreign investors continue to have confidence in the future prospects of our country.
During pricing, we chose an appropriate deal size of $750 million as per our original plans.
“I am pleased to report that the bond is performing well in the secondary market in the Irish Stock Exchange with good liquidity and trading at a premium.
He said the debt levels in the country were sustainable and talks with International Monetary Fund on providing a cushion against shocks was already completed and only approval by the Fund’s board was awaited early next year.
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Sharing the wealth
Countries that enjoy a resource windfall should be prudent about distributing it all directly to their people
Angola is the second largest oil producer in sub-Saharan Africa and one of the continent’s richest countries. Yet more children under the age of five die there than in most places in the world.
Most resource-rich countries lack the types of institutions needed to manage natural resource wealth effectively, and past performance does not bode well for countries with a resource windfall. Many of their citizens face continued poverty with little prospect of a significant improvement in living conditions. Angola’s under-five infant mortality rate is a vivid example.
In recent years, high commodity prices and new natural resource discoveries have increased many countries’ resource revenues, both as a share of the budget and in percent of GDP, offering new prospects for raising the population’s standard of living (see Chart 1 - click to enlarge). But few countries stand out as good examples of effective resource wealth management. Botswana, Chile, Norway, and the U.S. state of Alaska are some exceptions.
The experience of the success stories suggests that natural resource wealth management requires a commitment to three interrelated principles: fiscal transparency, a rules-based fiscal policy, and strong institutions for public financial management. For example, Norway and Alaska are models of transparency in the way they collect and budget natural resource revenue. This transparency helps people understand the use of resource wealth and holds political leaders accountable for their decisions. Chile’s fiscal rules protect resource wealth from the vagaries of political pressure, and its strong institutions are able to manage public investment. This helps transform natural resource wealth into productive assets, including infrastructure and human capital.
Some suggest that governments should give up their resource revenue and distribute it directly to the population. There are some good arguments to support this view – and strong arguments against it. Direct distribution is not a silver bullet (Gupta, Segura-Ubiergo, and Flores, 2014).
Devil’s excrement
The weak track record of most resource-rich countries’ use of natural resource revenue supports the view that new discoveries could be as much a curse as a blessing. Why does this happen?
A resource boom can cause a currency’s real exchange rate to appreciate, which reduces the competitiveness of the country’s exports and diverts resources toward sectors of the economy that don't engage in foreign trade – what is widely known as Dutch disease. Moreover, analysts have found that resource wealth is often associated with government corruption that undermines democratic accountability. These arguments are often used to suggest that natural wealth can become a “resource curse.” This idea was captured vividly by Juan Pablo Pérez Alfonso, Venezuela’s former minister of mines and hydrocarbons and cofounder of the Organization of the Petroleum Exporting Countries, who described petroleum as the “devil’s excrement” and warned of its potential to spawn waste, corruption, excessive consumption, and debt.
Many resource-rich countries lack both robust public finance management systems to ensure the transparency and efficiency of their budget process and the checks and balances in the decision-making process that are needed to ensure an effective use of resource wealth. Without them, they have struggled to follow the positive example of countries like Botswana, Chile, and Norway.
Building strong, stable institutions takes time. In the meantime, some scholars suggest, countries should distribute their resource revenues directly to the population, to boost economic growth and improve living standards (see “Spend or Send” in the December 2012 F&D).
Various arguments support this view, chiefly the claim that distribution prevents the government from misusing resource revenues and increasing its size. Some resource-rich countries arguably would welcome some form of direct distribution of revenue, but in others it could constrain the optimal provision of public goods. Moreover, even if the goal is to limit the size of the government by limiting access to resource revenue, alternatives such as reducing taxes are probably more efficient.
Another argument focuses on the impact of taxation on accountability (Sandbu, 2006). If resource revenues were distributed to the population and taxed to finance a portion of public goods, citizens would demand greater accountability in public spending programs. But this assumes that the gains from greater government accountability outweigh the efficiency losses associated with transferring revenues to the population and then taking some back. It also does not take into account that the transfer mechanism may be afflicted by the same institutional weaknesses and corruption as those of a typical resource-rich country.
How much and to whom
Direct distribution is a way to transfer some or all resource revenue to citizens to reduce the government’s discretionary authority over such resources and foster greater accountability. Discretionary authority and accountability are linked because citizens are less inclined to demand accountability if politicians can choose who is to receive resource revenues.
Views differ on how much of the revenues to distribute. One extreme calls for passing all natural resource revenues on to citizens, while more moderate proposals – Birdsall and Subramanian (2004) proposed for the case of Iraq distributing at least half – suggest returning only a portion of revenue or even just part of the investment income from a natural resource fund. The debate over how much to distribute centers around the economic consequences of such distribution, including the impact on work incentives, household savings, and overall macroeconomic stability.
As for who should receive resource revenues, distributing resources to all citizens has the appeal of eliminating political discretion over which groups should benefit. But universal transfers can have unintended consequences – such as encouraging families to have more children, which can be avoided by limiting transfers to adults. Some argue for pursuing social goals by targeting the poorest segments of the population or imposing conditions such as children’s school attendance. These laudable goals could help galvanize support for such mechanisms. They could, however, also lead to tension between reducing the coverage by targeting a particular segment of the population – particularly the poor, whose political voice is usually weaker – and increasing accountability. Moreover, the poor are not well equipped to handle income volatility, which these mechanisms would need to address.
Some argue for direct distribution outside the budget, which is subject to government corruption. This proposal would set aside resource revenue from the budgetary accounts and subject it to scrutiny, perhaps by an independent body rather than the parliament. Collection and distribution could even fall to an institution other than the national tax agency. Proponents of this idea contend that a separate mechanism to distribute resource revenues is more credible in the eyes of the population. But however achieved, direct distribution is not a recipe for eliminating corruption. It is naive to assume that a corrupt government would agree to direct distribution to deal with the problem. And there is no guarantee that the mechanism for distribution would not suffer from similar corruption.
Speaking from experience
Alaska has implemented the best known and perhaps most successful example of a direct distribution mechanism. But it is a conservative model with a relatively small dividend amounting to only 3 to 6 percent of Alaskans’ per capita income. Just a share of Alaska’s oil revenue goes into the fund, and only the investment income from this fund is distributed – subject to a cap of 5 percent of the fund’s total market value. The fund is managed by the Alaska Department of Revenue, and strong checks and balances within the budget make it in many ways a model of transparency. The case is widely viewed as a success, but one that was clearly achieved from a position of institutional strength and transparency, not as a solution to an institutional problem.
Given the limited number of direct distribution mechanisms worldwide, a look at related policies offers insight into what does and doesn’t work. It is always risky to make inferences from related policies, but the following cases provide some lessons:
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Venezuela has established a series of social programs called misiones. One focuses on adult literacy and remedial high school classes for dropouts; another on universal primary health care; and yet others on the construction of new houses for the poor, retirement benefits for the poor, food at discounted prices, and scholarships for graduate studies. As highlighted by Rodrίguez, Morales, and Monaldi (2012), these programs are funded directly by the state oil company and are therefore run outside the budget. As such, they give increased discretionary authority to the government. Some studies suggest that these programs suffer from as much corruption and populist pressure as the budget itself – which calls into question whether direct mechanisms outside the budget circumvent corruption.
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Experience with income support programs in advanced economies highlights the plausible negative impact of direct distribution transfers on the labor supply. These programs are meant to provide basic support to households that have little or no earnings. Some of this income support is then taxed away. Such programs have been criticized for providing insufficient incentives to low-income earners to work; earned income credit programs for which only workers are eligible are one alternative.
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The conditional cash transfer programs now popular in many developing economies can also dampen the incentive to work. These programs seek to reduce poverty by providing support – in the form of a cash transfer – subject to certain conditions, such as enrolling children in school or receiving vaccinations. The objective is to break the cycle of poverty by helping the current generation while promoting investment in the future generation. Most studies have found that the impact on the labor supply is negligible if the transfer is small and the benefits are targeted to the poorest households. Programs with larger transfers and with broader coverage – including better-off segments of the population – reduce labor participation more.
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Large energy subsidies in oil-rich countries are popular because the population expects to reap benefits from the abundance of oil resources. Pretax subsidies that allow firms and households to pay less than prevailing international prices are about 8½ percent of GDP in the Middle East and North Africa region. These generalized subsidies lead to inefficient resource allocation – which hurts growth – and disproportionately benefit those who are better off, which only worsens income inequality. Despite these drawbacks, the public supports subsidies because it sees no other way of benefiting from the abundance of natural resources.
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Worker remittances – money sent home by people working abroad – place additional resources in the hands of the household sector, as do direct distribution mechanisms. Experience suggests that most remittances are used for current consumption, and their impact on long-term growth is inconclusive. This casts doubt on the claim that direct distribution does not exacerbate Dutch-disease effects because the private sector will save when it receives a windfall just as the government does.
Lessons learned
Several lessons emerge from the Alaskan experience and that of related policies.
First, the overall design of fiscal policies could include direct distribution mechanisms, starting small to limit the impact on the labor supply. Limiting the proportion of resources directly distributed would ensure enough is available to the government for the provision of critical public services, as well as to ameliorate the impact of Dutch disease – as stressed by Hjort (2006).
Second, direct distribution is just as subject to corruption as public programs, so it should not be established outside the budget.
And, finally, it is important to remember that direct distribution of resource revenues doesn’t safeguard the needs of future generations.
Before embarking on direct distribution of resource revenues, a country must prepare its fiscal framework by
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determining the level of public revenue and spending necessary to ensure domestic macroeconomic stability and sustainable external balances;
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adopting policies that mitigate the impact of volatile commodity prices on revenue;
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accounting for uncertainty in the level of natural resource production and how much revenue the economy can absorb; and
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saving resources for future generations.
Direct distribution does not obviate the need to address these issues head-on. Although some argue that shifting the burden of managing volatility to the private sector could lead to improved outcomes, there is little evidence to support such a claim. As noted earlier, evidence from remittance-receiving countries suggests that the bulk of the money received is used for consumption rather than saving. While public sector management of volatility in resource-rich countries has been far from stellar, an IMF study (2012) shows that it seems to have improved as these countries shifted from policies that reinforced changes in commodity prices between 1970 and 1999 to broadly neutral ones in the past decade.
Direct distribution can have a significant impact on income distribution. In Ghana, for example, resource revenues amount to about 5 percent of GDP. The poorest 10 percent of the population earns only 2 percent of GDP, so universal direct distribution would raise the income of that group by about 25 percent. But the distribution of resource revenues would reduce the budgetary resources available for the provision of public services, which could in turn have adverse consequences on income distribution.
Another effect of direct distribution would undoubtedly be smaller government. Shifting resources to the private sector could curtail wasteful spending in some resource-rich countries but in others it could lower public spending to the point of threatening necessary infrastructure and public goods. Total expenditure in resource-rich countries averages about 28 percent of GDP, which seems broadly in line with that in non-resource-rich economies. But there are significant differences in government size and institutional capacity across resource-rich countries (see Chart 2 - click to enlarge). The likely impact on income distribution and provision of public services only reinforces the need to start small when it comes to direct distribution.
Worth pursuing?
While the view that direct distribution leads to increased accountability is appealing, large-scale direct distribution has not been tested anywhere in the world. There is little evidence that the extreme of distributing all resource revenues to the population is effective, but a case for modest direct distribution similar to the Alaskan model could be considered.
Even judicious distribution must be implemented under an appropriate fiscal framework and on a small scale to reduce the very plausible risk that distribution will stifle the provision of critical public services, lead to a drop in labor participation, or strain the government’s administrative capacity.
Sanjeev Gupta is a Deputy Director and Enrique Flores is a Senior Economist, both in the IMF’s Fiscal Affairs Department, and Alex Segura-Ubiergo is the IMF’s Resident Representative in Mozambique.
This article is published in Finance & Development, December 2014, Vol. 51, No. 4.
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Azevêdo: Africa set to benefit from WTO breakthrough on Bali
Director-General Roberto Azevêdo, in his address to the African Union Conference of Ministers of Trade on 4 December in Addis Ababa, Ethiopia, said that African nations stand to benefit from the recent WTO decisions on the Bali agreements, including on the Trade Facilitation Agreement, which would support “your efforts at regional integration in a very practical way”. He urged African members to “engage even more” in the WTO.
This is what he said:
Good morning. I’m delighted to be here, and to have the opportunity to address you today.
I travel a lot as Director-General – pretty much all over the world in fact. But everywhere I go I get asked the same question.
People want to know about my view of the global economy – what the next big trend is going to be and where the opportunities will lie for trade and investment.
And I always give the same answer: Africa.
I talk about Africa’s dynamism – that it has the youngest population and the highest growth.
And I talk about the sense of energy and purpose that I find in every African leader or businessperson I meet.
Right now I think Africa’s potential is unmatched. And I think that trade has a crucial role to play in helping to realize this potential.
I know I’m not alone in this view.
It was notable that a recent survey of global public opinion found that it was not the people of Asia or North America who have the most positive view of trade – but the people of Africa.
And this is largely down to the leadership that ministers and policymakers – all of you – are showing on this issue.
You are taking huge strides forward in regional integration.
There is a lot of excellent work going on to lower barriers and streamline procedures so that you can trade with each other more effectively.
I have heard numerous examples of transit costs being halved, and transit times being reduced from days or weeks to just hours.
The African Union’s Action Plan for Boosting Intra-African Trade is very important here. And of course there is your work towards creating a Continental Free Trade Area.
This regional integration is totally compatible with the multilateral agenda – indeed I think this work will support wider integration into the global trading system.
The fact that intra-African trade remains just a tenth of Africa’s total trade shows that improving regional integration is critical. But it also shows that engaging at the global, multilateral level remains vital.
That’s why while you are pursuing these regional efforts, you are also making your voices heard more loudly than ever at the WTO.
The WTO gives you a seat at the global table, and I strongly welcome your engagement.
In fact, my message today is that you should seek to engage even more in the weeks to come. We are coming to a defining period in our work when it will be crucial that your voices are heard in full.
I will say more about this in a moment.
But first, I’m sure you are all aware that since July there has been an impasse in the implementation of the Bali Package which has had a paralyzing effect on negotiations across the board.
The impasse related to the political link between two issues – the Decision on Public Stockholding for Food Security Purposes, and the Trade Facilitation Agreement.
I’m pleased to say that last week – almost on the anniversary of the Bali conference – we resolved this impasse.
It was a major breakthrough for all of us.
WTO members came together in a Special General Council meeting and took three very important decisions.
First, they clarified the Bali Decision on Public Stockholding for Food Security Purposes to say that the peace clause agreed in Bali will remain in force until a permanent solution is found to that issue. This was a key issue for one member in particular.
I know food security is also a very important issue for many of you, and so I can assure you that this clarification does not substantively change what we agreed in Bali – nor does it compromise in any way the policy space that exists in the agreements today.
Second, members adopted the protocol of amendment which formally inserts the Trade Facilitation Agreement into the WTO rulebook.
This clears the path for the Trade Facilitation Agreement to be implemented and come into force.
Members will now go ahead and ratify the Agreement, following their domestic procedures.
It is estimated that the Agreement will reduce trade costs by up to 15% in developing countries.
This is particularly important for Africa where the cost of customs procedures tends to be higher – around 30% higher than the global average according to UNECA.
But, moreover, this Agreement is important for Africa because it supports your efforts at regional integration in a very practical way.
For the first time in the WTO’s history, this Agreement states that assistance and support should be provided to help developing countries achieve the capacity to implement it.
So, for those countries with less-developed customs infrastructure, the Agreement will mean a boost in the technical assistance that is available to them.
To ensure that this commitment is honoured, I worked with the coordinators of the Africa Group, the LDC Group and the Africa, Caribbean and Pacific Group at the WTO. We decided the best approach was to create a new initiative, to be called the Trade Facilitation Agreement Facility.
This Facility will ensure that LDCs and developing countries get the help they need to develop projects and access the necessary funds to improve their border procedures, with all the benefits that that can bring.
The Facility is already in place and it became operational when members took this decision last week.
And donors are already very interested and involved.
We have already received a great deal of support and interest – and we have built strong partnerships with a number of organisations in support of this work, including the World Bank.
So I urge you to look at how this Facility and the various other trade facilitation projects can support you.
Members took a third decision last week as well – which was arguably the most important of all. It concerns the WTO’s post-Bali work.
With this decision, members agreed that this work will resume immediately and that they will engage constructively on the implementation of all the Bali Ministerial Decisions.
This means taking forward:
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the decisions on agriculture and cotton,
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the monitoring mechanism, which originated from an Africa Group proposal, and
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the LDC decisions on duty-free-quota-free, the services waiver and rules of origin.
It is vital that we use the momentum we have now to take these decisions forward with the priority they deserve.
Moreover, this decision means agreeing the work programme on the remaining DDA issues.
Under the decision taken last Thursday, all 160 WTO members committed to delivering the work programme by a new target date of July 2015.
I think this is an important moment – and a real opportunity.
The big, tough issues of agriculture, services and industrial goods will all be back on the table.
I urge you to engage fully in the discussions that will take place between now and July, to ensure that the outcomes reflect your concerns.
But I would also urge you to focus a critical eye on what is important for you now.
Focus on what is truly important – and what you think is doable.
We can achieve a great deal here, but if we over-reach then we will simply get stuck once again – and I think that is the worst-case scenario for developing countries.
So please, get engaged in the discussion.
I will be here to listen to you and support you in any appropriate way that I can.
These next few months will be critical.
We are also approaching an important moment in the Aid for Trade calendar.
The Fifth Global Review of Aid for Trade will be held at the WTO in Geneva from 30 June to 2 July 2015 – and I would like to extend an invitation to you all.
I will be using the event to bring together numerous key figures – heads of agencies, donors and regional development banks – to see what more we can do to support you to build your trading capacity and further the good work that is already being done.
So please come to Geneva and take part in that meeting.
This is also an important time for the Enhanced Integrated Framework for the LDCs – of which the WTO is a key partner.
The EIF is now up for evaluation and I have been arguing strongly for the initiative to continue into a new phase so that it can continue to assist LDCs to become more active players in the global trading system. And I hope you will also lend us your support here.
So, while there is a lot of work ahead of us, I think the WTO is going into the New Year with a lot of momentum.
The breakthrough last week put the WTO back in the game. It put our negotiations back on track.
But the decisions that members took were not an end in themselves. Rather, they were a means to allow us to pursue the greater ends of:
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delivering the Trade Facilitation Agreement – and the vital support that goes with it,
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taking the other Bali decisions forward,
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and delivering the work programme to tackle the remaining issues of the DDA.
You are the leaders who can seize this opportunity – and realize the potential that I talked about at the start of my remarks.
So I look forward to your renewed and redoubled engagement in 2015.
I will be here to help you in any way I can.
Thank you.
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India to press G20 for deadline to cut remittance costs: sources
India will press the Group of 20 economies to set a two-year deadline to reduce the cost of international money transfers, two government sources said, potentially saving more than $20 billion for developing countries.
The world’s largest recipient of remittances – of about $70 billion a year – won the backing of G20 leaders last month in Brisbane to take “strong practical measures” to cut the average cost of sending money home to 5 percent.
Despite that pledge, big banks are pulling out of handling remittances over rising compliance costs. In one case, 20 remittance firms sued Australia’s Westpac Banking Corp to stop it quitting the business.
“We will demand a deadline of two years at the next G20 meeting,” one of the sources, with direct knowledge of the matter, told Reuters.
The official is part of an Indian delegation that plans to attend a meeting of G20 deputy central bank governors in Istanbul on Dec. 11-12. Turkey has just taken over the annual presidency of the G20, an intergovernmental forum.
In 2011, G20 members agreed to bring down the global average cost of remittances to 5 percent by 2014, but that deadline has been missed.
The cost of remittances from G20 countries has fallen to 8.3 percent from 9.1 percent in 2011, the World Bank estimates. That has saved nearly $30 billion for migrant families since 2010, it said in a report to the G20.
Prime Minister Narendra Modi, who attended last month’s G20 summit, is pushing for Indians to save about $3 billion a year, partly helping bridge its current account deficit, the official said.
“The money belongs to poor families of developing countries and cannot be taken away in the name of transaction fees,” said another official.
Several Indian banks have brought down costs by up to 30 percent by offering services that allow Indian migrants in the United States and Britain to send money directly from their bank account or credit card to recipients in India.
Saudi Arabia has reduced remittance costs to near 3 percent, and India is hopeful that other G20 countries would agree to set a deadline to reduce the costs.
The government estimates that about 22 million Indians live abroad, with large communities in the Middle East, the United States and Britain.
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Road to Dignity by 2030: UN chief launches blueprint towards sustainable development
Calling for inclusive, agile and coordinated action to usher in an era of sustainable development for all, Secretary-General Ban Ki-moon on 4 December 2014 presented the United Nations General Assembly with an advance version of his so-called “synthesis report,” which will guide negotiations for a new global agenda centred on people and the planet, and underpinned by human rights.
“Next year, 2015, will herald an unprecedented opportunity to take far-reaching, long-overdue global action to secure our future well-being,” Mr. Ban said as he called on Member States to be “innovative, inclusive, agile, determined and coordinated” in negotiating the agenda that will succeed the landmark Millennium Development Goals (MDGs), the UN-backed effort to reduce extreme poverty and hunger, promote education, especially for girls, fight disease and protect the environment, all by 2015.
In an informal briefing to the 193-Member Assembly, the UN chief presented his synthesis report, The Road to Dignity by 2030: Ending Poverty, Transforming All Lives and Protecting the Planet, alongside the President of the General Assembly, Sam Kutesa who also addressed delegates, describing the process of intergovernmental negotiations that fed into the report’s compilation to set the stage for agreement on the new framework at a September 2015 summit and stressing the “historical responsibility” States faced to deliver a transformative agenda.
The synthesis report aims to support States’ discussions going forward, taking stock of the negotiations on the post-2015 agenda and reviewing lessons from pursuit of the MDGs. It stresses the need to “finish the job” – both to help people now and as a launch pad for the new agenda.
In the report’s conclusion, the Secretary-General issues a powerful charge to Member States, saying: “We are on the threshold of the most important year of development since the founding of the United Nations itself. We must give meaning to this Organization’s promise to ‘reaffirm faith in the dignity and worth of the human person’ and to take the world forward to a sustainable future… [We] have an historic opportunity and duty to act, boldly, vigorously and expeditiously, to turn reality into a life of dignity for all, leaving no one behind.”
Never before has so broad and inclusive a consultation been undertaken on development, Mr. Ban told the Assembly on 4 December, referring to the consultations that followed Rio+20 [the 2012 UN Conference on Sustainable Development], adding that his synthesis report “looks ahead, and discusses the contours of a universal and transformative agenda that places people and planet at the centre, is underpinned by human rights, and is supported by a global partnership.”
The coming months would see agreement on the final parameters of the post-2015 agenda and he stressed the need for inclusion of a compelling and principled narrative, based on human rights and dignity. Financing and other means of implementation would also be essential and he called for strong, inclusive public mechanisms for reporting, monitoring progress, learning lessons, and ensuring shared responsibility.
He also welcomed the outcome produced by the Open Working Group, saying its 17 proposed sustainable development goals and 169 associated targets clearly expressed an agenda aiming at ending poverty, achieving shared prosperity, protecting the planet and leaving no one behind.
Discussions of the Working Group had been inclusive and productive and he the Group’s proposal should form the basis of the new goals, as agreed by the General Assembly. The goals should be “focused and concise” to boost global awareness and country-level implementation, communicating clearly Member States’ ambition and vision.
The synthesis report presented dignity, people, prosperity, the planet, justice and partnerships as an integrated set of “essential elements” aimed at providing conceptual guidance during discussions of the goals and Mr. Ban stressed that none could be considered in isolation from the others and that each was an integral part of the whole.
“Implementation will be the litmus test of this agenda. It must be placed on a sound financial footing,” he said welcoming the work of the Intergovernmental Committee of Experts on Sustainable Development Financing and encouraging countries to scale up their efforts.
The Financing for Development Conference in Addis Ababa next year would play a major role in outlining the means for implementation, and he stressed the “key role” national Governments would play in raising domestic revenue to benefit the poorest and most vulnerable members of society.
Official development assistance (ODA) and international public funds, particularly for vulnerable countries, would also be vital to unlocking “the transformative power of trillions of dollars of private resources”, while private investment would be particularly important on projects related to the transition to low-carbon economies, improving access to water, renewable energy, agriculture, industry, infrastructure and transport.
Implementation would also rely on bridging the technology gap, creating a new framework for shared accountability, and providing reliable data, which he called the “lifeblood of sound decision-making.”
Stressing his commitment to ensuring the best outcome from the post-2015 process, he underlined the need for States to be guided by universal human rights and international norms, while remaining responsive to different needs and contexts in different countries.
“We must embrace the possibilities and opportunities of the task at hand,” he said.
In an earlier interview with the UN News Centre Amina J. Mohammed, the Secretary-General’s Special Adviser on Post-2015 Development Planning stressed that one of the report’s main “takeaways” is that “by 2030 we can end poverty, we can transform lives and we can find ways to protect the planet while doing that.”
“I think that’s important because we’re talking about a universal agenda where we’re going to leave no one behind. It’s not doing things by halves or by three-quarters, it’s about everyone mattering… To say you don’t want to leave anyone behind is to look to see who is the most vulnerable and smallest member of the family and what is it that we’re going to have to do to ensure that they’re not left behind, because that will be the litmus test and success of what we do.”
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Xi hails ‘China’s good friend’ Zuma
Chinese President Xi Jinping on Thursday hailed visiting South African President Jacob Zuma as China’s “good friend”, months after the latter’s government refused the Dalai Lama a visa.
“President Zuma is the Chinese people’s old friend and good friend,” Xi said as he welcomed Zuma on a state visit as trade and political ties between Pretoria and Beijing grow closer.
“South Africa is the comprehensive and strategic partner of China in Africa,” said Xi, who visited South Africa in March 2013 as part of his first foreign trip as head of state.
“We are good friends and good brothers that mutually benefit each other.”
Zuma, who is accompanied by a high-profile delegation including ministers for the environment, international relations, trade and energy, transport and finance, responded by thanking Xi for his “warm hospitality” since arriving.
“For me, this is a manifestation of the friendship and solidarity that exists between the People’s Republic of China and the Republic of South Africa,” Zuma said.
China is South Africa’s single largest trading partner, while South Africa is China’s largest trading partner on the continent.
South Africa joined the BRICS bloc of developing economies with Brazil, Russia, India and China in 2011.
During the apartheid era, Zuma’s African National Congress was supported by Moscow while Beijing backed the rival Pan Africanist Congress, but in recent years South Africa has maintained a strongly pro-China foreign policy.
In the last five years Pretoria has thrice declined a visa for the Dalai Lama, the exiled Tibetan spiritual leader and Nobel Peace Prize winner.
Dozens of Nobel laureates boycotted a September meeting in Cape Town following the latest refusal, which was widely regarded as a sign of South Africa’s deference to Beijing.
Fellow laureate and anti-apartheid activist Desmond Tutu also slammed the government over the visa refusal. The meeting was forced to moved to Rome.
During Zuma’s visit, China announced the signing of a series of agreements, including a memorandum of understanding on nuclear energy cooperation between China National Nuclear Corporation and the South African Nuclear Energy Corporation.
China said that the two sides agreed a five-to-10 year strategic programme on cooperation, as well as to improve bilateral cooperation in trade and investment between China’s ministry of commerce and South Africa’s department of trade and industry.
Detailed terms of the agreements were not immediately available.
South Africa said last month it had signed a nuclear energy cooperation agreement with China, calling the deal a “preparatory phase for a possible utilisation of Chinese nuclear technology”. The deal followed similar agreements with Russia and France.
South Africa, which has one nuclear plant, is plagued by electricity blackouts and is seeking to reduce its heavy reliance on coal-fired power stations.
Electricity constraints have been blamed for limiting economic growth and productivity.
Zuma earlier held talks with Chinese Premier Li Keqiang, with Li congratulating Zuma on his re-election in May as South Africa’s president.
“You have always attached high importance to South Africa’s relations with China and you have made unrelenting efforts to grow China-South Africa relations,” Li said.
“We have always appreciated our interaction between China and South Africa. I must say that we feel very much at home,” Zuma responded.
» Read more: South Africa signs agreements of cooperation with China
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“Moving from business by necessity to entrepreneurship by choice” – The African Union Commission supports women in agribusiness
The African Union Commission is implementing a project to empower women through agricultural entrepreneurship. The project, supported by the UNDP, and implemented by UN Women through the African Centre for Transformative and Inclusive Leadership (ACTIL) – a joint programme of UN Women Eastern and Southern Africa Regional Office (ESARO) and Kenyatta University – involves a series of transformational leadership training workshops for Women in agribusiness.
Women farmers are the pillars of agriculture and food security in Africa. While millions of women in sub-Saharan Africa contribute to their national agricultural output, family food security, and environmental sustainability – as producers, resource managers, sellers, processors and buyers of food – they are still marginalized in agricultural marketing and business systems. Women in agriculture face unique challenges compared to their male counterparts: they operate smaller farms; keep fewer livestock. Women also have less access to agricultural and business information and extension services, and to credit and other financial services. They are less likely to use inputs such as fertilizers, improved seeds and mechanical equipment, and often have little influence within agricultural value chains.
In spite of the challenges there are many women that are breaking through the barriers and establishing themselves in agribusiness, as producers, processors, marketers and exporters. The African Union Commission is focusing on such women. The training aims to enhance women’s productivity, benefits from, and leadership role in agribusiness. The transformational leadership approach espoused by UN Women (ESARO) and ACTIL motivates women in agribusiness to understand the players and dynamics in their respective value chains, and to position themselves not only to seize opportunities for maximizing profits but also to mobilise other women and youth in the sector for greater impact.
This initial phase of the project benefits women and youth from Benin, Burkina Faso, Burundi, Cameroon, Cote d’Ivoire, DRC, Ghana, Kenya, Niger, Nigeria, and Uganda. The training is organized in three sessions: two sessions in English in Nairobi, Kenya, at the Africa Centre for Transformative and Inclusive Leadership (ACTIL) and one session in French at the Songhai Centre in Porto Novo, Benin. One hundred and thirty women will have benefited from the project by the end of December 2014.
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Finance for climate action flowing globally
Finance for Climate Action Flowing Globally stood at $650 Billion annually in 2011-2012, and possibly higher
Hundreds of billions of dollars of climate finance may now be flowing across the globe annually according to a landmark assessment presented on 3 December 2014 to governments meeting in Lima, Peru at the UN Climate Convention meeting.
The assessment – which includes a summary and recommendations by the UNFCCC Standing Committee on Finance and a technical report by experts – is the first of assessment reports that puts together information and data on financial flows supporting emission reductions and adaptation within countries and via international support.
The assessment puts the lower range of global total climate finance flows at $340 billion a year for the period 2011-2012, with the upper end at $650 billion, and possibly higher.
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Support from developed countries to developing countries amounted to between $35 and $50 billion annually, with multilateral development banks (MDBs), climate-related Official development Assistance (ODA) and other official flows (OOF) representing significant shares of resources channeled through public institutions
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Funding through dedicated multilateral climate funds – including UNFCCC funds ($ 0,6 billion) – represented smaller shares during the same period, and do not include the recent pledges for the Green Climate Fund amounting to nearly $10 billion.
The assessment notes that the exact amounts of global totals could be higher due to the complexity of defining climate finance, the myriad of ways in which governments and organizations channel funding, and data gaps and limitations – particularly for adaptation and energy efficiency.
In addition, the assessment attributes different levels of confidence to different sub-flows, with data on global total climate flows being relatively uncertain, in part due to the fact that most data reflect finance commitments rather than disbursements, and the associated definitional issues.
The assessment is an important contribution of the Standing Committee on Finance that enhances transparency and clarity on climate finance flows – including information on international support to developing countries.
In addition, the assessment includes a set of recommendations by the Standing Committee on Finance to the Conference of the Parties, which, among other things, include ways to strengthen transparency and accuracy of information on climate finance flows through working towards a definition of climate finance and further efforts that would enable better measurement, reporting and verification.
The assessment also recognizes the need for understanding the impacts of climate finance associated with emissions reductions and activities to boost resilience to climate change.
The 2014 Biennial Assessment and Overview of Climate Finance Flows has been prepared by the Standing Committee on Finance following a mandate by the Conference of the Parties. The 2014 report was prepared with input from a wide range of experts and contributing organizations that collect data on climate finance flows.
Christiana Figueres, Executive Secretary of the UNFCCC, said: “Finance will be a crucial key for achieving the internationally-agreed goal of keeping a global temperature rise under 2 degrees C and sparing people and the planet from dangerous climate change”.
“Understanding how much is flowing from public and private sources, how much is leveraging further investments and how much is getting to vulnerable countries and communities including for adaptation is not easy, but vital for ensuring we are adequately financing a global transformation,” she said.
“I would like to thank the Standing Committee on Finance and the numerous experts and organizations who have contributed to this important assessment. It provides a baseline and a foundation upon which future assessments and more importantly future climate action can be refined and focused,” said Ms. Figueres.
“This first biennial assessment represents a milestone of the work of the Standing Committee on Finance. It is an important information tool for Parties to the Convention that provides a picture of climate finance flows and how they relate to climate actions, including the objectives of the Convention” said Standing Committee on Finance co-chairs Diann Black Layne and Stefan Schwager.
“Going forward, the Standing Committee on Finance will contribute further to improvements in the information on climate finance flows, including through collaborations with data collectors and aggregators,” they added.
More Facts and Figures from the 2014 Biennial Assessment and Overview of Climate Finance Flows Report:
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Global total flows: Most climate finance in 2011/2012 is raised and spent at home – in developed countries 80 per cent of the funds deployed for climate action are raised domestically.
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The same pattern is seen in developing countries where just over 71 per cent comes from national sources
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Around 95 per cent of global total climate finance is spent on mitigation or cutting emissions with 5 per cent on adaptation.
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Subsidies for oil and gas and investments in fossil fuel-fired generation are almost double the global finance for addressing climate change
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Flows from developed to developing countries: Multiple sources were involved in providing funding to support climate action in developing countries ranging from Multilateral Development Banks (MDBs) and Overseas Development Assistance (ODA) to multilateral climate funds – including funds administered by the Operating Entities of the Financial Mechanism of the Convention and the Kyoto Protocol.
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For example, finance from MDBs is around between $15 and $23 billion annually; multilateral climate funds including via the GEF were about $1.5 billion, including those linked to the UNFCCC at about $0.6 billion a year.
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48 to 78 per cent of finance is reported as fast-start finance (2010-2012), in Biennial Reports (2011-2012), through multilateral climate funds, and through MDBs supports mitigation, or other/multiple objectives (6 to 41 per cent)
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Adaptation finance in the same sources ranges from 11 per cent to 24 per cent.
Notes
The assessment has tried to identify the flows to various sectors and initiatives – real precision in this area will have to await future assessments and the numbers need to be treated with caution.
Assessing investments in adaptation is particularly difficult often because they can form part of a larger project such as an investment in a port of water supply system.
Meanwhile, there is also no universal operational definition of what constitutes adaptation and in addition publicly funded adaptation actions within countries – both developed and developing – is rarely reported or available.
As a result, flows from developed to developing countries are not really known with precision.
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Watchdog gets nod to effect market studies
All recommendations made by the Competition Authority to streamline agriculture products markets must be implemented immediately, the President said Thursday.
Addressing delegates at the World Competition Day celebration, President Uhuru Kenyatta said this would boost wealth creation by farmers.
He told the Competition Authority to work closely with other government agencies in implementing the recommendations of market studies in tea, artificial insemination, seeds and sugar.
“Eradication of marketing distortions may reduce our poverty levels by a further 1.5 per cent. This is our key agenda and we have to achieve it,” he said in a speech read on his behalf by National Treasury Cabinet Secretary Henry Koskei.
FINANCIAL INCLUSION
The function was at Safari Park Hotel, Nairobi.
The President also told the Competition Authority to expedite the Product Market Regulatory Indicative Study, which it is conducting and have the findings discussed with stakeholders in February.
This will aid in modernising regulatory aspects and help in realisation of Vision 2030, he said.
The study covers telecommunications, transport, investment policy, retailing, banking, insurance and energy.
The President said the government had increased the authority’s budget to enable it conclude cases such as abuse of market dominance in telecommunications.
“These cases will go a long way in deepening financial inclusion, through easing access to mobile money transfer and also lead to consumer savings, as a result of increased competition,” he said.
He told county governments not to introduce regulations and restrictive conditions in issueing licences that could impede the proper functioning of demand and supply of products.
ACTION PLAN
The progress made so far
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Competition Authority: We dealt with 88 merger applications by June, compared with 65 the previous year, says Director-General Wang’ombe Kariuki.
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Also finalised 23 cases of restrictive trade practices, compared with 16; and 15 consumer cases compared with six in 2013.
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World Bank: An impact assessment supported by the global lender shows that the retailing trade restrictive case resulted in consumers saving about $1 million (Sh90 million), while money transfer rates fell by 67pc.
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AfDB releases report on trade finance in Africa
Trade finance is essential for international trade. This financial intermediation helps firms to manage risks inherent in international transactions, improve their liquidity and enable them to optimally invest to enhance their growth.
It is for this reason that, in 2013, the Board of the African Development Bank (AfDB) approved a US $1-billion trade finance (TF) program to support African trade and provide financing to underserved African-based financial institutions and enterprises. Despite its importance, there is a great deal we do not know about the trade finance market in Africa. This includes the size of the market, the variations across sub-regions, the scale of financing gap, the trade finance devoted to intra-African trade, the relative importance of on-balance sheet versus off-balance sheet financing, and constraints faced by banks.
The report Trade Finance in Africa seeks to fill the above information gap. It is based on a unique survey of the trade finance activities performed by commercial banks in Africa in 2011 and 2012. Our survey questionnaire was sent to approximately 900 banks on the continent. We received a high response rate, resulting in a dataset that covers 276 banks across 45 countries. All the sub-regions on the continent are represented in the survey.
We found that the size of bank-intermediated trade finance is approximately US $330 billion to US $350 billion and approximately 93% of banks have trade finance assets. This is roughly equal to one-third of total African trade. The market is not uniformly distributed across sub-regions as the average trade finance assets per bank in Northern Africa dwarfs those of the other sub-regions. The share of bank-intermediated trade finance that is devoted to intra-African trade is limited, and comprises approximately 18% (US $68 billion) of the total trade finance assets of African banks.
It should be noted, however, that the share of intra-African trade accounts for 11% (US $110 billion) of the value of total African trade. Given the estimated rejection rates of trade finance applications reported in the survey, the conservative estimate for the value of unmet demand for bank-intermediated trade finance is US $110 billion to US $120 billion, significantly higher than estimated earlier figures of about US $25 billion. These figures suggest that the market is significantly underserved.
African banks face numerous constraints in meeting the demand for trade finance. The survey reveals that the main constraints are limited US dollar availability (by far the dominant currency in international trade, and by extension, trade finance) and insufficient limits with confirming banks for confirming letters of credit. Other constraints include small balance sheets, which tends to make single obligor limits frequently binding. These constraints also suggest that the AfDB’s trade finance program, as well as those implemented by other international financial institutions, are needed and well suited to relaxing some of the most binding constraints.
Finally, the survey shows that the outlook of banks for trade finance remains positive, with 72% expecting to increase their trade finance activities in the immediate future. However, banks foresee obstacles to their trade finance portfolio growth such as low US dollar liquidity, regulation compliance, slow economic growth in some markets, and the inability to assess the credit-worthiness of potential borrowers.
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